2006 Legislative Orientation Joint Fiscal Office Economic and Revenue Review Montpelier, Vermont...

2006 Legislative OrientationJoint Fiscal Office

Economic and Revenue Review

Montpelier, VermontDecember 1, 2006

• Thomas E. Kavet, President• Dr. Nicolas O. Rockler, CEO• Consulting Economists to the Vermont State

Legislature Since 1996

• Kavet, Rockler & Associates, LLC Economic and Public Policy Consulting

985 Grandview RoadWilliamstown, Vermont 05679-9003 USATelephone: 802-433-1360Facsimile: 866-433-1360Cellular: 802-272-8385Website: www.kavetrockler.comE-Mail: [email protected]

JFO Analyses: Linkages BetweenEconomics and Public Policy

Issues

Economics

• Macro-Economics• Demographics• Micro-Economics• Data and Forecasts• Policy Review and

Commentary

Public Policy Issues

• State Revenues• State Expenses• Tax Policy Impacts• Public Policy Options• Oversight Functions• Special Studies

Macro-Economics State Revenues

Vermont Adjusted Equalized Grand List (thick red line) Vs. OFHEO Conventional and Conforming Home Price Index, (Index 1980Q1 = 100)

in Vermont Lagged Four Quarters (thin green line)

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000

45.000

50.000

55.000

60.000

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

Sources: PVR; E.com Index based on OFHEO data; Prepared for the Joint Fiscal Office by Thomas E. Kavet, March 2005

Eq

ua

lize

d E

du

ca

tio

n G

ran

d L

ist

- B

illi

on

s o

f D

oll

ars

64.94

94.8345

124.729

154.6235

184.518

214.4125

244.307

274.2015

304.096

333.9905

363.885

Ho

me

Pri

ce

In

de

x,

19

80

Q1

=1

00

Macro-Economics State Revenues

Vermont Real Adjusted* Equalized Education Grand List (*excluding Utilities and Personal Property, including Current Use Exempt Value; Consensus1106 Forecast)

0.0

10000.0

20000.0

30000.0

40000.0

50000.0

60000.0

70000.0

19

63

19

64

19

65

19

66

19

67

19

68

19

69

19

70

19

71

19

72

19

73

19

74

19

75

19

76

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

Source: Vermont Property Valuation and Review; Prepared for the Joint Fiscal Office by Thomas E. Kavet, August 2002

Mil

lio

ns

of

Co

ns

tan

t 1

99

2 D

oll

ars

Economic Forecasts State Revenues

What Kind of Landing?Quarterly Growth in Real GDP at Annual Rates

-4

-2

0

2

4

6

8

90 Q

1

90 Q

3

91 Q

1

91 Q

3

92 Q

1

92 Q

3

93 Q

1

93 Q

3

94 Q

1

94 Q

3

95 Q

1

95 Q

3

96 Q

1

96 Q

3

97 Q

1

97 Q

3

98 Q

1

98 Q

3

99 Q

1

99 Q

3

00 Q

1

00 Q

3

01 Q

1

01 Q

3

02 Q

1

02 Q

3

Source: Bureau of Economic Analysis, U.S. Department of Commerce

Annu

aliz

ed Q

uarte

rly P

erce

nt C

hang

e

Soft-Landing

Hard-Landing

Economic Forecasts State Revenues

• Official State Revenue Projections Prepared Semi-Annually, in January and July

• Forecasts of 41 Revenue Concepts• Consensus Forecast Process With

Administration Economist, if Possible• Forms Basis of Official State Budgets• Education Fund Forecasts of About 60

Key Variables Affecting both Revenues and Expenses

Detailed Economic and Revenue Outlook Updates for Vermont Are

Available Every January and July at:

• Vermont Legislative Joint Fiscal Office Website: - www.leg.state.vt.us/jfo - see Publications and Archives

• Latest Consensus JFO and Administration Economic and Revenue Outlook (some hard copy handouts may be available here or at the Joint Fiscal Office):

http://www.leg.state.vt.us/jfo/State%20Forecasts/06%20July%20Forecast.pdf

Current Economic Indicators Are Mixed

Vermont Revenue Collections for Major Funds Are Expected to Slow Dramatically in the Current and Next

Fiscal Years…Total Vermont Source General and Transportation Fund Revenues

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

Source: Vermont Legislative Joint Fiscal Office - Fiscal Year Basis

Perc

en

t C

han

ge v

s. Y

ear

Ag

o

…As Sources of Exceptional Growth During the Past Two Years Diminish,

Including:• Slowing real estate markets and reductions in associated

wealth, taxable capital gains and personal income revenue

• Waning Corporate profitability as the business cycle ages

• Relatively high energy prices, dampening per unit tax source revenues such as gasoline and diesel fuel, as well as new motor vehicle purchases and associated ad valorem taxes

• Most risks at this time are on the downside, with some calling

for a 50/50 risk of recession in the next year

• Rising interest rates, inflation risks and the extended housing market render the economy vulnerable to further external shock

At the Same Time, the Property Tax Base Supporting Education Expenditures Will Decelerate

Rapidly…Total Vermont Equalized Education Grand List - Primary Education Fund Tax Base

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

Source: Vermont Legislative Joint Fiscal Office - Calendar Year Basis

Perc

en

t C

han

ge v

s. Y

ear

Ag

o

…As Real Estate Markets Retrench

OFHEO Vermont Housing Price Index Percent Change Vs. Year Ago

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

In the Meantime, Near Term Cost Pressures Are Expected to Escalate, With Fuel and Health Inflation

Leading the Way Cost Pressures Will Escalate

(Implicit State and Local Government Deflator, Percent Change vs. Year Ago)

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: U.S. Department of Commerce, Vermont Joint Fical Office and Administration Consensus Forecasts

Pe

rce

nt

Ch

an

ge

vs

. Y

ea

r A

go

Demographic Forecasts State Expenses

1996 1997 1998 1999 2000 2001 2002 2003 2004Age 586333 588632 590883 594211 598318 602935 606767 610298 613464

0 6498 6426 6426 6405 6501 6605 6706 6806 69061 6728 6375 6312 6246 6419 6518 6616 6718 68122 7044 6676 6332 6301 6317 6496 6594 6686 67803 7253 6982 6626 6394 6366 6386 6561 6652 67424 7652 7288 7031 6715 6534 6509 6522 6695 67865 7957 7579 7204 7012 6759 6576 6547 6555 67266 8477 7875 7520 7203 7068 6818 6622 6587 65917 8436 8421 7847 7482 7257 7123 6867 6658 66218 8073 8051 8070 7526 7251 7040 6903 6652 64389 8656 8587 8610 8628 8096 7808 7577 7428 7147

10 8756 8630 8610 8625 8829 8301 7998 7762 759411 8704 8579 8505 8477 8659 8880 8353 8041 780012 8462 8641 8570 8487 8563 8759 8980 8451 813213 8739 8482 8718 8636 8701 8790 8985 9213 868114 8747 8731 8530 8755 8777 8853 8937 9134 936815 8561 8767 8811 8597 8744 8768 8837 8914 910316 8577 8550 8808 8844 8604 8750 8759 8819 888917 8298 8780 8817 9125 8979 8732 8866 8863 891718 7668 8018 8436 8474 8931 8784 8527 8645 863119 7921 8006 8347 8809 8891 9371 9191 8909 902220 7459 7769 7836 8178 8664 8741 9195 9001 871121 7228 7189 7443 7506 7916 8386 8448 8868 866622 6694 6888 6808 7048 7241 7640 8076 8127 851823 6773 6508 6656 6583 6880 7067 7448 7863 790224 8195 6790 6485 6639 6659 6957 7131 7508 791225 9247 8018 6615 6336 6599 6621 6907 7070 744226 9070 9138 7903 6543 6354 6617 6625 6905 705927 8858 9132 9181 7974 6632 6448 6701 6701 697728 7777 8491 8755 8846 7597 6349 6167 6403 639229 8064 8619 9399 9722 9714 8365 7014 6808 706030 7897 7972 8520 9329 9618 9609 8281 6962 675631 8383 7866 7951 8537 9206 9492 9464 8168 688332 8869 8608 8095 8223 8659 9323 9600 9558 825633 9202 9052 8805 8318 8317 8737 9376 9642 958334 10188 9752 9610 9382 8713 8704 9106 9745 1001335 10290 10278 9845 9734 9424 8755 8728 9107 972336 10211 10201 10192 9784 9661 9357 8682 8642 899337 10382 10424 10407 10415 9970 9850 9530 8835 878138 10164 9863 9895 9890 9946 9536 9413 9098 842739 11440 11397 11051 11093 11056 11136 10667 10529 1016940 10730 11163 11109 10779 10821 10799 10867 10409 1026941 10485 10541 10952 10909 10582 10633 10602 10666 1021942 10371 10497 10541 10962 10906 10602 10644 10611 1067143 10038 10300 10413 10464 10822 10785 10479 10524 1048044 10337 10437 10692 10818 10918 11308 11256 10943 1098545 9497 10126 10209 10469 10553 10666 11041 10989 1068646 9161 9240 9837 9931 10186 10284 10390 10752 1069847 9046 9260 9325 9940 9936 10208 10303 10407 1076348 8525 8589 8774 8847 9515 9525 9777 9868 996649 9955 9334 9394 9613 9581 10317 10324 10593 1069250 6882 9656 9032 9103 9361 9340 10046 10054 1031451 6635 6608 9252 8670 8759 9015 8991 9662 966852 6630 6578 6538 9167 8607 8705 8953 8924 958653 6954 6660 6594 6563 9211 8649 8742 8989 895554 5996 7032 6724 6665 6623 9307 8730 8821 906455 5325 5800 6786 6500 6445 6410 9004 8439 852056 5155 5382 5848 6861 6650 6597 6555 9209 862457 5019 5161 5375 5853 6882 6673 6619 6572 922658 4565 4659 4778 4992 5499 6477 6271 6217 616659 4559 4819 4909 5048 5245 5783 6806 6585 652860 4414 4416 4664 4765 4883 5081 5597 6582 636761 4374 4302 4300 4556 4647 4766 4958 5457 641762 4030 4337 4267 4278 4491 4584 4697 4886 537363 4086 4033 4338 4272 4299 4513 4603 4716 490264 4291 4133 4077 4393 4293 4323 4536 4626 473465 4412 4195 4127 3981 4276 4186 4210 4416 450266 4255 4195 3988 3827 3902 4196 4103 4129 432967 4265 4310 4291 4062 3772 3850 4138 4047 406868 4109 4017 4061 3989 3888 3614 3691 3963 387769 3871 4007 3954 3961 3991 3893 3618 3697 396970 3761 3851 3984 3873 3838 3871 3773 3504 357871 3844 3741 3752 3874 3775 3741 3772 3676 341572 3716 3714 3616 3692 3794 3701 3664 3696 3596

Demographics State ExpensesVermont Population - Age 0 (Births)

5000

5500

6000

6500

7000

7500

8000

8500

9000

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

Source: U.S. Census Bureau, Vermont Legislative Joint Fiscal Office Estimates

Vermont Population by Age - July 1980

0 2000 4000 6000 8000 10000 12000

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85+

Ag

e

Number of Persons Source: U.S. Census Bureau


0 2,000 4,000 6,000 8,000 10,000 12,000

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85+

Ag

e



0 2000 4000 6000 8000 10000 12000

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85+

Ag

e



0 2000 4000 6000 8000 10000 12000

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85+

Ag

e


Age 85+ = 13,089

The Aging of the Vermont Population - July 1980 (blue) vs. July 2005 (red)

0 2000 4000 6000 8000 10000 12000

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85+

Ag

e


The Aging of the Vermont Population - July 1980 (blue) vs. July 2005 (red) vs. July 2020 (clear)

0 2000 4000 6000 8000 10000 12000

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85+

Ag

e


Year 2020 85+ Population = 17,210

Demographic Forecasts State Expenses

1996 1997 1998 1999 2000 2001 2002 2003 2004

Total Pop 586333 588632 590883 594211 598318 602935 606767 610298 613464%ch 0.39% 0.38% 0.56% 0.69% 0.77% 0.64% 0.58% 0.52%

0-4Year 35175 33747 32727 32061 32137 32515 32999 33557 34026%ch -4.06% -3.02% -2.03% 0.24% 1.18% 1.49% 1.69% 1.40%%share 5.999% 5.733% 5.539% 5.396% 5.371% 5.393% 5.438% 5.498% 5.546%

5-18Year 118111 117691 117056 115869 115219 113982 112757 111722 110638%ch -0.36% -0.54% -1.01% -0.56% -1.07% -1.07% -0.92% -0.97%%share 20.144% 19.994% 19.810% 19.500% 19.257% 18.905% 18.583% 18.306% 18.035%

5-19Year 126032 125697 125403 124678 124109 123353 121948 120631 119660%ch -0.27% -0.23% -0.58% -0.46% -0.61% -1.14% -1.08% -0.81%%share 21.495% 21.354% 21.223% 20.982% 20.743% 20.459% 20.098% 19.766% 19.506%

0-18Year 153286 151438 149783 147930 147356 146497 145756 145279 144664%ch -1.21% -1.09% -1.24% -0.39% -0.58% -0.51% -0.33% -0.42%%share 26.143% 25.727% 25.349% 24.895% 24.628% 24.297% 24.022% 23.805% 23.581%

5-14Year 85007 83576 82184 80829 79960 78948 77768 76481 75098%ch -1.68% -1.67% -1.65% -1.07% -1.27% -1.49% -1.66% -1.81%%share 14.498% 14.198% 13.909% 13.603% 13.364% 13.094% 12.817% 12.532% 12.242%

15-19Year 41025 42121 43219 43849 44149 44405 44180 44150 44562%ch 2.67% 2.61% 1.46% 0.68% 0.58% -0.51% -0.07% 0.93%%share 6.997% 7.156% 7.314% 7.379% 7.379% 7.365% 7.281% 7.234% 7.264%

Vermont Population Projections by Selected Age-CohortsJFO and Administration Consensus Forecast - August 2000

Figure 2: Vermont Public School Enrollments

88,000

90,000

92,000

94,000

96,000

98,000

100,000

102,000

104,000

106,000

108,000

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

Sources: Vermont DOE and Consensus Administration and Joint Fiscal Office Projections - May 2006

Economics Tax Policy Impacts

• Tax Increases: MV Fees, Cigarette Tax, etc.

• Tax Cuts: Income Tax, Sales & Use Tax• Federal Tax Change Impacts• Neighboring State Tax Changes (e.g., NH

Income Tax, NY, et. al., Cigarette Tax Changes)

• Tax Collection and Compliance (e.g., Diesel Tax Change)

• Tax Credits, Tax Expenditures (e.g., Business Subsidies, VEPC, VEGI, TIFs, etc.)


The Arizona Alt-Fuel Debacle

• What Happens When Tax Policy Impacts Are Not Adequately Estimated?

• End-of-Session, “last minute” legislation• Pet Project of Speaker of House• No Party Opposition – Governor’s Support• Federal Highway Funds Threatened• So-Called “Minor” Changes to Existing

Policies


The Arizona Alt-Fuel Debacle


• 1% Program Cap Changed to “Registered” Vehicles, Instead of “New” Vehicles

• Refundable Credit of 30%-50% of a New Vehicle Plus Fuel Conversion Costs

• No Fuel Use Requirement• No Resident Requirement for Credit• “Quick and Dirty” Estimates of $2-$11

Million

Economics Tax Policy ImpactsThe Arizona Alt-Fuel Debacle


• Potential $400-$800 Million Out-of-Budget Expense!

• 5-10% of Total State Budget• Possible 4 Year Budget Freeze• Program Cancellation – Lawsuits Abound• Speaker Loses Re-election Bid• Becomes Major Political Issue in Subsequent

Elections

Other JFO Economic Functions and Special Projects

• State Economic Model Specification and Management (REMI, REDYN, IMPLAN)

• Legislative Oversight Functions (e.g., VEPC, State Agencies and Departments, Legislation Compliance Follow-up, etc.)

• Legislative Studies and Sub-Committee Support Functions (e.g., Property Tax Analysis, Livable Income, etc.)

• Special Topic Research/Analysis (Fiscal Cost-Benefit Models, Electric Utility Deregulation, etc.)

For Further Information, Contact The Joint Fiscal Office or:

• Thomas E. Kavet• Dr. Nicolas O. Rockler

• Kavet, Rockler & Associates, LLC Economic and Public Policy Consulting

985 Grandview RoadWilliamstown, Vermont 05679-9003 USATelephone: 802-433-1360Facsimile: 866-433-1360Cellular: 802-272-8385Website: www.kavetrockler.comE-Mail: [email protected]

2006 Legislative Orientation Joint Fiscal Office Economic and Revenue Review Montpelier, Vermont...

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